Saturday, September 05, 2009

Idiots at the Cato Institute?

The Cato Institute is a think-tank devoted to free-market, Libertarian ideals. It is no surprise, therefore, that they would adopt the following attitude. It always surprises me when smart people make dumb statements however, even though everyone is equally capable in that regard. Economist Chris Edwards was quoted on national television as saying, “The economy would have started recovering by now without government intervention.”

This is a stupid statement because it is demonstrably meaningless, having only emotional appeal to those who dispute the wisdom of current government policy. Don’t get me wrong. I am no fan of bank bail-outs that do not “trickle down” into real relief for those being foreclosed upon. I’m just equally annoyed at pundit inaccuracies.

The first problem with this statement can be compared to the insolvable question, “Do you get wetter running through the rain or walking?” There are too many variables to arrive at an answer. What “Economy” is Edwards talking about? The US economy? The global economy? The macro economy? The micro economy? Too many inter-connected variables. Once a change has been introduced, the chain of cause and effect without that change can only be imagined, not accurately predicted. It’s worse than trying to predict the weather patterns two months later if hurricane Bob had never existed. We do not have a parallel universe to observe and accurately chart the chain of consequences.

Problem two: the “X-factors”. Without an economic stimulus package, do things get so bad that one wild-card individual finds a stash of phosphate fertilizer and blows up the Commodities Exchange? Extreme example, to be sure, but all unpredictable consequences have to be ignored (low probabilities are discounted) when making “what-if” predictions. This idealizes the result, as at least some low-probability consequences are bound to happen, but which ones?

The third problem is slightly different, but in the same vein. Granting for the sake of argument that the statement, “The economy would have started recovering by now without government intervention” is true, it leaves the following question unanswered. From what depth of misery would we be recovering? How deep a trough would the crash-landing of the economy have dug? See the problems above for why this question is equally unpredictable.

Spending time thinking about what would have happened, or what might have happened in these circumstances is living in the past and a waste of time, except from the standpoint of propaganda, or agit-prop. One is far more productive when attempting to chart a course based on what did happen, or what Lewis Black among others likes to refer to as, “FUCKING REALITY!” Chris Edwards of the Cato institute is either an idiot for making such statements, or he thinks his audience is stupid enough to accept these statements at face value, or both.